Business Wire | Feb 24, 2021 04:06PM EST

Safety Announces Fourth Quarter and Year End 2020 Results

Feb. 24, 2021

BOSTON--(BUSINESS WIRE)--Feb. 24, 2021--Safety Insurance Group, Inc. (NASDAQ:SAFT) ("the Company") today reported fourth quarter 2020 results. Net income for the quarter ended December 31, 2020 was $53.0 million, or $3.55 per diluted share, compared to net income of $28.1 million, or $1.82 per diluted share, for the comparable 2019 period. Net income for the year ended December 31, 2020 was $138.2 million, or $9.18 per diluted share, compared to net income of $99.6 million, or $6.46 per diluted share, for the comparable 2019 period. Non-generally accepted accounting principles ("non-GAAP") operating income, as defined below, for the quarter ended December 31, 2020 was $2.55 per diluted share, compared to $1.44 per diluted share, for the comparable 2019 period. Non-GAAP operating income for the year ended December 31, 2020 was $8.64 per diluted share, compared to $5.25 per diluted share, for the comparable 2019 period.

Safety's book value per share increased to $59.40 at December 31, 2020 from $52.55 at December 31, 2019, primarily as a result of net income and an increase in unrealized gains, partially offset by dividends paid and the purchase of treasury shares during the year ended December 31, 2020. During the year ended December 31, 2020 the Company purchased 551,598 shares, on the open market at a cost of $40.0 million. No share purchases were made by the Company under the program during the year ended December 31, 2019. Safety paid $3.60 per share in dividends to investors during the year ended December 31, 2020 compared to $3.40 per share during the year ended December 31, 2019.

Beginning in March 2020, the global pandemic associated with the novel coronavirus COVID-19 ("COVID-19") and related economic conditions caused significant economic effects including temporary closures of many businesses and reduced consumer activity due to shelter-in-place, stay-at-home and other governmental actions. The Company has continued to take many actions that address the health and well-being of our employees while still serving the needs of our agents and insureds.

Direct written premiums for the quarter ended December 31, 2020 decreased by $7.1 million, or 3.7%, to $182.6 million from $189.7 million for the comparable 2019 period. Direct written premiums for the year ended December 31, 2020 decreased by $53.7 million, or 6.3% to $798.7 million from $852.4 million for the comparable 2019 period. The 2020 decrease, in part, is attributable to our commercial automobile line of business and is a result of changes made by Commonwealth Automobile Reinsurers ("CAR") to eligibility requirements which impacted the number of policies that we handle as a Servicing Carrier to the ceded pool. This resulted in a commensurate decrease in ceded written premium to and assumed from these programs. The decrease for the year ended December 31, 2020 also reflects the Safety Personal Auto Relief Credit, a 15% policyholder credit, representing $17.7 million in total premium which was applied to personal auto policies for the months of April, May and June.

Net written premiums for the quarter ended December 31, 2020 decreased by $4.5 million, or 2.6%, to $171.1 million from $175.6 million for the comparable 2019 period. Net written premiums for the year ended December 31, 2020 decreased by $30.9 million, or 3.9%, to $763.5 million from $794.4 million for the comparable 2019 period. Net earned premiums for the quarter ended December 31, 2020 decreased by $3.1 million, or 1.5%, to $196.4 million from $199.5 million for the comparable 2019 period. Net earned premiums for the year ended December 31, 2020 decreased by $17.7 million, or 2.2%, to $771.1 million from $788.8 million for the comparable 2019 period. The decreases in both periods are a result of the decrease in direct written premiums as described above.

The pandemic has resulted in fewer cars on the road, resulting in a decrease in frequency of claims, primarily in our private passenger automobile line of business. As a result, for the quarter ended December 31, 2020, loss and loss adjustment expenses incurred decreased by $30.6 million, or 24.3%, to $95.8 million from $126.4 million for the comparable 2019 period. For the year ended December 31, 2020, loss and loss adjustment expenses incurred decreased by $105.2 million, or 20.7%, to $404.6 million from $509.8 million for the comparable 2019 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the quarter ended December 31, 2020 were 48.8%, 36.3%, and 85.1%, respectively, compared to 63.4%, 31.1%, and 94.5%, respectively, for the comparable 2019 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the year ended December 31, 2020 were 52.5%, 34.6%, and 87.1%, respectively, compared to 64.6%, 31.0%, and 95.6%, respectively, for the comparable 2019 period. Total prior year favorable development included in the pre-tax results for the quarter ended December 31, 2020 was $20.2 million compared to $16.5 million for the comparable 2019 period. Total prior year favorable development included in the pre-tax results for the year ended December 31, 2020 was $54.8 million compared to $42.1 million for the comparable 2019 period.

The increase in the expense ratios in the respective periods is driven by an increase in contingent commission expense as well as costs associated with various system modernization in our claims, billing and underwriting areas and a reduction in certain expense allowances provided under the Servicing Carrier program that have decreased with the related written premium as noted above.

Net investment income for the quarter ended December 31, 2020 decreased by $1.7 million, or 13.7%, to $10.7 million from $12.4 million for the comparable 2019 period. Net investment income for the year ended December 31, 2020 decreased by $5.7 million, or 12.0%, to $41.0 million from $46.7 million for the comparable 2019 period. The decreases in both periods is a result of lower floating yields on our bank loan portfolio, lower interest income on certain partnership investments and fixed maturity amortization resulting from prepayment activity on certain residential mortgage-backed securities. Net effective annualized yield on the investment portfolio for the quarter ended December 31, 2020 was 3.0% compared to 3.6% for the comparable 2019 period. Net effective annualized yield on the investment portfolio for the year ended December 31, 2020 was 2.9% compared to 3.4% for the comparable 2019 period. Our duration on fixed maturities was 3.2 years at December 31, 2020 compared to 3.3 years at December 31, 2019.

On February 16, 2021, our Board of Directors approved a $0.90 per share quarterly cash dividend on its issued and outstanding common stock payable on March 15, 2021 to shareholders of record at the close of business on March 5, 2021.

Non-GAAP Measures

Management has included certain non-GAAP financial measures in presenting the Company's results. Management believes that these non-GAAP measures better explain the Company's results of operations and allow for a more complete understanding of the underlying trends in the Company's business. These measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles ("GAAP"). In addition, our definitions of these items may not be comparable to the definitions used by other companies.

Non-GAAP operating income and non-GAAP operating income per diluted share consist of our GAAP net income adjusted by the net realized gains on investments, net impairment losses on investments, change in net unrealized gains on equity investments, credit loss benefit (expense) and taxes related thereto. For the quarter ended December 31, 2020, an increase of $16.1 million for the change in unrealized gains on equity securities was recognized within income before income taxes, compared to an increase of $6.3 million recognized in the comparable 2019 period. For the year ended December 31, 2020, an increase of $10.4 million for the change in unrealized gains on equity securities was recognized in income before income taxes, compared to an increase of $21.5 million recognized in the comparable 2019 period. Net income and earnings per diluted share are the GAAP financial measures that are most directly comparable to non-GAAP operating income and non-GAAP operating income per diluted share, respectively. A reconciliation of the GAAP financial measures to these non-GAAP measures is included in the financial highlights below.

About Safety: Safety Insurance Group, Inc., based in Boston, MA, is the parent of Safety Insurance Company, Safety Indemnity Insurance Company, Safety Property and Casualty Insurance Company, and Safety Northeast Insurance Company. Operating exclusively in Massachusetts, New Hampshire, and Maine, Safety is a leading writer of property and casualty insurance products, including private passenger automobile, commercial automobile, homeowners, dwelling fire, umbrella and business owner policies.

Additional Information: Press releases, announcements, U. S. Securities and Exchange Commission ("SEC") Filings and investor information are available under "About Safety," "Investor Information" on our Company website located at www.SafetyInsurance.com. Safety filed its December 31, 2019 Form 10-K with the SEC on February 28, 2020 and urges shareholders to refer to this document for more complete information concerning Safety's financial results.

Cautionary Statement under "Safe Harbor" Provision of the Private Securities Litigation Reform Act of 1995:

This press release contains, and Safety may from time to time make, written or oral "forward-looking statements" within the meaning of the U.S. federal securities laws. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "aim," "projects," or words of similar meaning and expressions that indicate future events and trends, or future or conditional verbs such as "will," "would," "should," "could," or "may". All statements that address expectations or projections about the future, including statements about the Company's strategy for growth, product development, market position, expenditures and financial results, are forward-looking statements.

Forward-looking statements are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. There are a number of factors, many of which are beyond our control, that could cause actual future conditions, events, results or trends to differ significantly and/or materially from historical results or those projected in the forward-looking statements. These factors include but are not limited to:

* The competitive nature of our industry and the possible adverse effects of such competition; * Conditions for business operations and restrictive regulations in Massachusetts; * The possibility of losses due to claims resulting from severe weather; * The possibility that the Commissioner of Insurance may approve future rule changes that change the operation of the residual market; * Our possible need for and availability of additional financing, and our dependence on strategic relationships, among others; * The effects of emerging claim and coverage issues on the Company's business are uncertain, and court decisions or legislative or regulatory changes that take place after the Company issues its policies, including those taken in response to COVID-19 (such as requiring insurers to cover business interruption claims irrespective of terms or other conditions included in the policies that would otherwise preclude coverage), can result in an unexpected increase in the number of claims and have a material adverse impact on the Company's results of operations; * The impact of COVID-19 and related risks, including on the Company's employees, agents or other key partners, could materially affect the Company's results of operations, financial position and/or liquidity; and * Other risks and factors identified from time to time in our reports filed with the SEC, such as those set forth under the caption "Risk Factors" in our Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.

We are not under any obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise. You should carefully consider the possibility that actual results may differ materially from our forward-looking statements.

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)





December 31, December 31,

2020 2019

(Unaudited)

Assets

Investments:

Fixed maturities, available for sale, at fairvalue (amortized cost: $1,189,951 and $ 1,256,653 $ 1,228,040 $1,192,357, allowance for expected creditlosses of $1,054 at December 31, 2020)

Short term investments, at fair value (cost: 441 - $441 and $0)

Equity securities, at fair value (cost: 205,254 177,637 $168,289 and $151,121)

Other invested assets 45,239 37,278

Total investments 1,507,587 1,442,955

Cash and cash equivalents 53,769 44,407

Accounts receivable, net of allowance forexpected credit losses of $1,754 at December 179,147 193,369 31, 2020

Receivable for securities sold 1,311 1,784

Accrued investment income 8,045 8,404

Taxes recoverable 279 1,003

Receivable from reinsurers related to paid loss 13,432 11,319 and loss adjustment expenses

Receivable from reinsurers related to unpaid 106,311 122,372 loss and loss adjustment expenses

Ceded unearned premiums 22,406 35,182

Deferred policy acquisition costs 74,962 74,287

Equity and deposits in pools 30,429 29,791

Operating lease right-of-use-assets 31,000 33,998

Other assets 25,595 23,798

Total assets $ 2,054,273 $ 2,022,669



Liabilities

Loss and loss adjustment expense reserves $ 567,581 $ 610,566

Unearned premium reserves 421,901 442,219

Accounts payable and accrued liabilities 79,486 75,016

Payable for securities purchased 7,144 6,377

Payable to reinsurers 8,236 12,911

Deferred income taxes 17,611 5,717

Debt 30,000 -

Operating lease liabilities 31,000 33,998

Other liabilities 6,635 27,459

Total liabilities 1,169,594 1,214,263





Shareholders' equity

Common stock: $0.01 par value; 30,000,000shares authorized; 17,724,866 and 17,662,779 178 177 shares issued

Additional paid-in capital 209,779 202,321

Accumulated other comprehensive income, net of 53,527 28,190 taxes

Retained earnings 745,029 661,553

Treasury stock, at cost: 2,831,168 and (123,834 ) (83,835 )2,279,570 shares

Total shareholders' equity 884,679 808,406

Total liabilities and shareholders' equity $ 2,054,273 $ 2,022,669

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except share and per share data)

Three Months Ended December 31,

Year Ended December 31,

2020

2019

2020

2019

Net earned premiums

$

196,438

$

199,450

$

771,078

$

788,777

Net investment income

10,701

12,393

41,045

46,665

Earnings from partnership investments

4,312

506

6,901

1,937

Net realized gains on investments

1,640

1,463

957

2,976

Change in net unrealized gains on equity investments

16,088

6,286

10,449

21,454

Net impairment losses on investments (a)

-

(492

)

-

(889

)

Credit loss benefit (expense)

1,235

-

(1,054

)

-

Finance and other service income

4,620

4,293

16,872

16,833

Total revenue

235,034

223,899

846,248

877,753

Losses and loss adjustment expenses

95,782

126,460

404,556

509,846

Underwriting, operating and related expenses

71,290

61,949

266,482

244,136

Interest expense

132

23

440

90

Total expenses

167,204

188,432

671,478

754,072

Income before income taxes

67,830

35,467

174,770

123,681

Income tax expense

14,865

7,365

36,559

24,080

Net income

$

52,965

$

28,102

$

138,211

$

99,601

Earnings per weighted average common share:

Basic

$

3.57

$

1.84

$

9.25

$

6.52

Diluted

$

3.55

$

1.82

$

9.18

$

6.46

Cash dividends paid per common share

$

0.90

$

0.90

$

3.60

$

3.40

Number of shares used in computing earnings per share:

Basic

14,755,082

15,220,902

15,002,755

15,201,132

Diluted

14,866,704

15,340,518

15,119,027

15,337,807

(a) No portion of the other-than-temporary impairments recognized in the period indicated were included in Other Comprehensive Income for the period ended December 31, 2019.

Reconciliation of Net Income to Non-GAAP Operating Income

Net income

$

52,965

$

28,102

$

138,211

$

99,601

Exclusions from net income:

Net realized gains on investments

(1,640

)

(1,463

)

(957

)

(2,976

)

Change in net unrealized gains on equity investments

(16,088

)

(6,286

)

(10,449

)

(21,454

)

Net impairment losses on investments

-

492

-

889

Credit loss (benefit) expense

(1,235

)

-

1,054

-

Income tax expense on exclusions from net income

3,982

1,524

2,174

4,944

Non-GAAP operating income

$

37,984

$

22,369

$

130,033

$

81,004

Net income per diluted share

$

3.55

$

1.82

$

9.18

$

6.46

Exclusions from net income:

Net realized gains on investments

(0.11

)

(0.10

)

(0.06

)

(0.19

)

Change in net unrealized gains on equity investments

(1.08

)

(0.41

)

(0.69

)

(1.40

)

Net impairment losses on investments

-

0.03

-

0.06

Credit loss (benefit) expense

(0.08

)

-

0.07

-

Income tax expense on exclusions from net income

0.27

0.10

0.14

0.32

Non-GAAP operating income per diluted share

$

2.55

$

1.44

$

8.64

$

5.25

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except share and per share data)



Three Months Ended December 31, Year Ended December 31,

2020 2019 2020 2019



Net earned $ 196,438 $ 199,450 $ 771,078 $ 788,777 premiums

Netinvestment 10,701 12,393 41,045 46,665 income

Earnings frompartnership 4,312 506 6,901 1,937 investments

Net realizedgains on 1,640 1,463 957 2,976 investments

Change in netunrealizedgains on 16,088 6,286 10,449 21,454 equityinvestments

Netimpairmentlosses on - (492 ) - (889 )investments(a)

Credit lossbenefit 1,235 - (1,054 ) - (expense)

Finance andother service 4,620 4,293 16,872 16,833 income

Total revenue 235,034 223,899 846,248 877,753



Losses andloss 95,782 126,460 404,556 509,846 adjustmentexpenses

Underwriting,operating and 71,290 61,949 266,482 244,136 relatedexpenses

Interest 132 23 440 90 expense

Total 167,204 188,432 671,478 754,072 expenses



Income before 67,830 35,467 174,770 123,681 income taxes

Income tax 14,865 7,365 36,559 24,080 expense

Net income $ 52,965 $ 28,102 $ 138,211 $ 99,601



Earnings perweighted averagecommon share:

Basic $ 3.57 $ 1.84 $ 9.25 $ 6.52

Diluted $ 3.55 $ 1.82 $ 9.18 $ 6.46



Cashdividends $ 0.90 $ 0.90 $ 3.60 $ 3.40 paid percommon share



Number ofshares usedin computing earnings pershare:

Basic 14,755,082 15,220,902 15,002,755 15,201,132

Diluted 14,866,704 15,340,518 15,119,027 15,337,807



(a) No portion of the other-than-temporary impairments recognized in the periodindicated were included in Other Comprehensive Income for the period endedDecember 31, 2019.



Reconciliation of Net Income to Non-GAAP Operating Income



Net income $ 52,965 $ 28,102 $ 138,211 $ 99,601

Exclusionsfrom net income:

Net realizedgains on (1,640 ) (1,463 ) (957 ) (2,976 )investments

Change in netunrealizedgains on (16,088 ) (6,286 ) (10,449 ) (21,454 )equityinvestments

Netimpairment - 492 - 889 losses oninvestments

Credit loss(benefit) (1,235 ) - 1,054 - expense

Income taxexpense onexclusions 3,982 1,524 2,174 4,944 from netincome

Non-GAAPoperating $ 37,984 $ 22,369 $ 130,033 $ 81,004 income



Net incomeper diluted $ 3.55 $ 1.82 $ 9.18 $ 6.46 share

Exclusionsfrom net income:

Net realizedgains on (0.11 ) (0.10 ) (0.06 ) (0.19 )investments

Change in netunrealizedgains on (1.08 ) (0.41 ) (0.69 ) (1.40 )equityinvestments

Netimpairment - 0.03 - 0.06 losses oninvestments

Credit loss(benefit) (0.08 ) - 0.07 - expense

Income taxexpense onexclusions 0.27 0.10 0.14 0.32 from netincome

Non-GAAPoperating $ 2.55 $ 1.44 $ 8.64 $ 5.25 income perdiluted share

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

Three Months Ended December 31,

Year Ended December 31,

2020

2019

2020

2019

Written Premiums

Direct

$

182,627

$

189,671

$

798,712

$

852,404

Assumed

5,535

8,498

26,316

32,391

Ceded

(17,077

)

(22,579

)

(61,491

)

(90,386

)

Net written premiums

$

171,085

$

175,590

$

763,537

$

794,409

Earned Premiums

Direct

$

207,464

$

213,841

$

815,981

$

845,102

Assumed

5,954

8,111

29,365

32,853

Ceded

(16,980

)

(22,502

)

(74,268

)

(89,178

)

Net earned premiums

$

196,438

$

199,450

$

771,078

$

788,777

View source version on businesswire.com: https://www.businesswire.com/news/home/20210224006017/en/

CONTACT: Safety Insurance Group, Inc. Office of Investor Relations 877-951-2522 InvestorRelations@SafetyInsurance.com